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    Waste Connections (WCN)

    Q3 2024 Earnings Summary

    Reported on Mar 12, 2025 (After Market Close)
    Pre-Earnings Price$178.56Last close (Oct 24, 2024)
    Post-Earnings Price$177.58Open (Oct 25, 2024)
    Price Change
    $-0.98(-0.55%)
    • Waste Connections anticipates improving margins in the historically lower-margin Northeast region over the next couple of years, driven by opportunities in the New York market and benefits from the franchise model providing greater efficiencies and densities locally.
    • The company reports improving churn rates in non-franchise markets, now lower than in 2021 and back to pre-2020 levels, with retention of price increases above 85% to 90%, indicating stable customer retention and ability to maintain price increases at current levels.
    • Waste Connections sees continued robust growth opportunities through acquisitions, with $4.5 billion of private company opportunities in markets they are in or analogous to markets they are in; they are set up for a very good year in 2025, potentially exceeding their traditional annual acquisition levels.
    • Decreasing commodity prices, particularly for recyclables like OCC, are negatively impacting revenues. The average OCC price in Q3 was $139, below the expected $145, and prices have continued to decline. A 10% move on the basket more broadly is about $25 million impact.
    • Ongoing negative volume growth due to shedding contracts and nonrenewals is expected to persist into 2025, potentially slowing down volume recovery and affecting revenue growth.
    • Delayed benefits from RNG investments, with limited contributions expected next year and full EBITDA contributions not realized until 2027, delaying expected improvements in free cash flow conversion.
    1. Margin Outlook
      Q: Can you clarify expectations for margin expansion into 2025?
      A: Management expects underlying margin expansion in 2025 to be similar to 2024, which was extremely strong. However, reported margins might be slightly lower due to headwinds like commodities and margin dilution from M&A, but they still anticipate above-average underlying solid waste margin expansion.

    2. Volume and Pricing Expectations
      Q: How are you viewing the macro environment and its impact on volumes and pricing?
      A: Underlying volumes are positive, but shedding of lower-margin contracts will continue to impact reported volumes into 2025. Management plans for mid-single-digit price plus volume growth in 2025, with a focus on price-led organic growth.

    3. Capital Expenditure Plans
      Q: How should we think about growth CapEx next year and free cash flow conversion?
      A: While detailed guidance will be provided in February, management expects free cash flow conversion to be similar to 2024. Incremental contributions from RNG projects won't be meaningful next year due to timing, and commodity prices may be a slight drag, potentially offsetting each other.

    4. M&A Strategy
      Q: What are your plans for M&A opportunities in 2025?
      A: The M&A market remains robust, with a continued focus on core solid waste opportunities. Management is comfortable exceeding their historical acquisition range of $150 million to $250 million and sees around $4.5 billion in private company opportunities.

    5. Integration and Culture
      Q: How are you managing integration of acquisitions while maintaining company culture?
      A: With reduced turnover and a decentralized operating structure, the company is well-positioned to integrate more acquisitions than ever. Focus on rapid assimilation and local management helps avoid cultural dilution and drives performance improvements.

    6. Chiquita Canyon Update
      Q: Can you provide an update on the Chiquita Canyon landfill situation and spending plans?
      A: Significant progress has been made, with capping nearly complete and regulatory oversight returning to normal. Expected spending for Chiquita in 2025 is estimated to be in the range of $50 million to $75 million, down from 2024.

    7. Cost Inflation and Pricing
      Q: What is the outlook for cost inflation and its impact on pricing strategy?
      A: Cost inflation continues in the 4% to 5% range, with wage inflation at the high end or above. This necessitates an outsized spread between price increases and headline CPI, influencing pricing strategies for 2025.

    8. Landfill Gas Investments
      Q: How are landfill gas investments progressing, and what contributions are expected?
      A: Four new facilities are being brought online in 2024, with minimal impact this year. Larger projects will come online at the end of 2025 into 2026, with significant contributions expected by 2027.

    9. Commodities Pricing Impact
      Q: What is the impact of recent commodity price movements on the business?
      A: Average OCC prices in Q3 were $139, lower than the expected $145. A 10% move in the commodity basket impacts revenue by approximately $25 million.

    10. E&P Business Performance
      Q: Can you provide an update on the performance of the E&P business?
      A: The E&P business is performing well, with a run rate of $550 million, representing about 5.8% to 6% of total revenues and 8.2% of EBITDA. Recent acquisitions have strengthened their position, and margins remain strong due to focus on disposal and transfer services.

    11. RIN Prices and EPA Targets
      Q: What are your thoughts on RIN prices and potential EPA target resets?
      A: RIN prices are inherently uncertain; therefore, the company uses a hybrid strategy with opportunistic hedging at around $3. They don't have better predictions than others but mitigate risk through their approach.

    12. Storm Impact and Opportunities
      Q: What opportunities arise from recent storms and hurricanes?
      A: While initial impact is negative, there is potential for increased landfill revenue in the following quarters if landfills are well-positioned. After Hurricane Ian, they reported about $15 million in incremental revenue over four quarters; similar or higher impact could occur but it's too early to tell.

    13. Churn Rates and Price Retention
      Q: How are churn rates in non-franchise markets affecting price increases?
      A: Churn rates continue to improve, with voluntary turnover down to about 13.5% to 14%. They target retention of price increases north of 85% to 90% and are achieving those numbers.

    14. Service Interval Trends
      Q: Can you discuss recent trends in service intervals?
      A: Service intervals, particularly for small container customers, continue to improve. Service decreases related to economic factors are less of a headwind than in previous quarters.

    15. Election Impact Concerns
      Q: Are you concerned about potential changes due to the upcoming election?
      A: Management is not overly concerned about the election outcome. They have operated successfully under various administrations and believe they can adapt to any regulatory changes.

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